balfour beatty :counter-report 2000 2000 :balfour beattyÕs annus horribilis · 2010-03-10 ·...

2000 : balfour beatty’sannus horribilis

balfour beatty : counter-report 2000

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"the Ilisu Dam was from theoutset conceived andplanned in contravention ofinternational standards, andit still does not comply. Forthat reason [export credit]cover should not be given."

International DevelopmentSelect Committee, July 2000

Ilisu Dam CampaignBox 210266 Banbury RoadOxford OX2 7DLe-mail: [email protected]

The Ilisu Dam Campaign works to stop Britishinvolvement in the Ilisu dam project and tohighlight the wider policy implications forBritain's ethical foreign policy, sustainabledevelopment and for peace and security in theregion.

Photocredits: photographs courtesy of AngelaBarber, Dean Bialek, Hannah Rumsby, RichieAndrew and Birmingham Friends of the Earth.

Contents Page

2000: balfour beatty’s annus horribilis 2

Group activities - a range of concerns 8-9

Hatfield Rail Crash - Health and safety concerns

Birmingham Northern Relief Road - Environmental concerns

London Underground Public-Private Partnership - Health and safety concerns

FBI raids Balfour Beatty in the US - Fraud allegations

Lesotho Highlands Water Project - Prosecution for alleged bribery

Heathrow tunnel

Channel tunnel

Cardiff Bay Barrage

The Ilisu Dam 10

Resolution No. 15:balfour beatty and the World Commission on Dams 12

1 balfour beatty : counter-report 2000

Summary:

Reputational risks - a growing shareholder concern

When it comes to reputation, 2000was not the best year in BalfourBeatty's corporate scrapbook.

The year began with the companybeing taken to court on corruptioncharges over the Lesotho HighlandsWater Project and ended with theHatfield rail crash, in which fourpeople died and 30 were injured on astretch of line for which Balfour Beattyhad the maintenance contract. (Seepages 8-9.) The Health and SafetyExecutive (HSE) has since stated thatit is considering bringing corporatemanslaughter charges against sixsenior executives, including BalfourBeatty staff, for failing to replace thedefective rail thought to have been amajor cause of the crash.

Sandwiched in between theLesotho charges and the Hatfieldtragedy, the company's flagshiphydropower project, the Ilisu Dam,was castigated by two UK parliamen-tary committees and was describedby the chair of the ParliamentaryCommittee on Human Rights as "thismiserable dam"; and the offices ofBalfour Beatty-Massachusetts Electricwere raided by the FBI in connectionwith fraud allegations relating to thecompany's contract for constructingAmtrak's electric system for theNortheast Rail Co. (See pages 8-9.)16


2000: balfour beatty’s

annus horribilis

With corporate governance anincreasingly important focus of share-holder concerns - the UKShareholders' Association lists corpo-rate governance as its prime concern- shareholders in Balfour Beatty mayreflect that for a company to brushwith the law once in the space of ayear is unfortunate: to do so threetimes could be described as morethan careless.

Under the Institute of CharteredAccountants new Turnbull rules,adopted by the Stock Exchange,company directors in listed companiesare now obliged to take account of all"significant risks", including social andenvironmental risks, which coulddamage a company when carryingout its duties. Moreover, the code

Mark Thomas, a Director of the IlisuDam Campaign, addresses a publicrally against the Ilisu Dam in October2000

requires that directors put in placeinternal controls to manage theserisks and review them regularly toensure their effectiveness.

In the light of the new rules,shareholders will undoubtedly belooking to Balfour Beatty for reassur-ances that:1. Any reputational risks to the

company are justified financiallyand do not threaten future share-holder value;

2. Steps have been taken to containunjustified reputational risks andto ensure the company's standing;

3. The company's strategy forcontaining reputational risksmatches or betters that of itspeers and strengthens its futurecompetitiveness.

Although Balfour Beatty has yet toreport under the new Turnbull rules,there are strong grounds for believingthat the company is not in a positionto give shareholders adequate assur-ances on these key concerns.

REPUTATIONAL RISKS ANDSHAREHOLDER VALUEA. The Balance of Risk and Reward- The Case of the Ilisu DamAll companies take risks: nonetheless,shareholders rightly demand assur-ances that those risks are wellmanaged and they will not damagethe company's reputation and value.

In the case of the Ilisu Dam,shareholders may question whether ornot management has got the balanceof risk and rewards right.

Balfour Beatty is heading theconstruction consortium for theproject, which would be built in theKurdish region of Southeast Turkey,an area that has been wracked by a17-year long war and which remainsunder emergency rule. The companyhas applied to the British Governmentfor a $200 million export credit guar-antee in support of its contract. InDecember 1999, the Department of

Trade and Industry announced it was"minded" to support the bid.

Criticism of UK support for theproject is widespread and growing. Inthe past nine months, over 5,000people have written to Prime MinisterTony Blair to urge the government notto support Balfour Beatty's exportcredit application. There has beensaturation media coverage ofconcerns over the project's environ-mental and human rights impacts,with highly critical editorials in theFinancial Times, the Guardian, theDaily Express, and coverage on theBBC News, Newsnight, Channel FourNews and ITV's 'Tonight with TrevorMacDonald'.

The damage that such criticism isdoing to Balfour Beatty's reputationmust be compared with the contribu-tion to expected profitability from Ilisu.Far from providing a major boost tobottom line profit, the company's ownfigures suggest that the project will beworth under $2 million a year to thecompany, which is less than 1 percent of group profits.1 Even this smallmargin may be under pressurebecause of the risks and controver-sies associated with the dam whichhave already led to slippage in theproject schedule. Shareholders mayalso wish to seek assurances that thetime expended on the project bysenior management is justified finan-cially.

Significantly, ABB and Skanska,two leading members of the originalIlisu consortium, have already with-drawn from the project. Skanska,which had a 24 per cent share in theproject, has yet to be replaced.Although the company told theFinancial Times that the decisionresulted from unspecified negotiatingproblems which were unrelated topublic protests over the social andenvironmental impacts of the project,company spokesperson Thor Krusseltold the Turkish newspaper Ozgur

Politika that the firm did not participatein projects which are "not to thebenefit of society and the environ-ment." In an interview with the LondonGuardian newspaper, Krussel alsopointed out that the company's envi-ronmental policy had been updated sothat the company was now committedto "caring about people and the envi-ronment" in all its work. Krusselstated: "Skanska will abstain fromparticipating in construction projectswhen in our judgement a project willresult in serious risks to the environ-ment or to society at large."

B. Lost ContractsThe failure to manage reputationalrisks inevitably has implications forfuture profitability, particularly if thereis a risk that contracts will be lost,either directly or indirectly.

Here, again, there are grounds forshareholder concern. Corruption alle-gations, for example, have already ledto Balfour Beatty’s former parentcompany, BICC, being temporarilyexcluded from one potentially lucrativemarket. In 1996, the company wasbanned for five years from bidding fornew government-related projects inSingapore after a civil servant, Mr.Choy Hon Tim, was convicted fortaking payments for supplying confi-dential information on capital projectsfor which BICC was bidding. Thecompany denied the charge, but theSingapore authorities insisted on theban.2

In the UK too, the loss ofcontracts has been linked in thepublic's mind (rightly or wrongly) toadverse publicity surrounding thecompany. Most recently, BalfourBeatty's East Coast rail maintenancecontract was cancelled in the wake ofthe Hatfield rail disaster. The contract- worth over £250 million over fiveyears, with an option to extend it to 10years - went to rival firm JarvisFacilities.


C. Potential BlacklistingLooking to the future, there is a smallbut significant risk, with potentiallynuclear consequences for shareholdervalue, that the company could bedebarred from World Bank contractsshould the courts uphold the corrup-tion allegations in the LesothoHighlands Water Project (LHWP).3

The LHWP, Africa's largest civil engi-neering project, involves the construc-tion of five dams in Lesotho's MalutiHighlands over 30 years, due forcompletion in 2020.

Under its anti-corruption rules, theWorld Bank is committed to black-listing any company convicted ofcorruption in a World Bank fundedproject. Given the Bank's involvementin the LHWP, Non-GovernmentalOrganisations (NGOs) are pressingthe World Bank to blacklist all of thecompanies being prosecuted,including Balfour Beatty, if they areconvicted.

In September 2000, the WorldBank's President James Wolfensohnresponded to such demands by givingNGOs an assurance that he will acton the decision of the Lesotho Court:"What we have to do is to get a judi-cial decision on the issue. We cannotanticipate it, but we can follow it and Ican assure you that we will be doingthat and that there has been no frac-tional move away from the policy that,if there has been corruption in aWorld Bank project, that we will black-list the company that is concerned."

Although the legal grounds for theWorld Bank taking action againstcompanies working on components ofthe LHWP that were not directlyfunded by the Bank may becontested, the political pressure onthe Bank to take action is likely to beintense. Either way, Balfour Beatty'sreputation, if convicted in Lesotho, islikely to undergo further erosion, tothe detriment of the company's value.

In addition, many ECAs, whosebacking is increasingly important forcompanies seeking infrastructurecontracts in the Third World andEastern Europe (two potential growthmarkets for Balfour Beatty) have nowintroduced - or are introducing -tighter anti-corruption measures.These include the possibility ofdemanding the repayment of creditsthat have been awarded for corruptlyobtained contracts.

The UK Export CreditsGuarantees Department, whichbacked Balfour Beatty's involvementin the Lesotho Highlands WaterProject, is one of the ECAs to haveinstituted new anti-corruption meas-ures. According to the ECGD, "Theeffect of the various new declarationsand policy provisions is that anyexporter found engaging in a corruptactivity (as defined in the documenta-tion) may find that its insurance coveris avoided or terminated."

The ECGD's new BusinessPrinciples also state that the ECGD"will promote the full implementationof the OECD Convention onCombating Bribery of Foreign PublicOfficials in International BusinessTransactions". Sanctions that theOECD considers appropriate in theevent of bribery being establishedinclude:

"Exclusion from entitlement topublic benefits or aid; temporary orpermanent disqualification from partic-ipation in public procurement or fromthe practice of other commercial activ-ities; placing under judicial supervi-sion; and a judicial winding up order."4

Similar anti-corruption measuresare to be introduced by all OECDExport Credit Agencies. In December2000, the OECD's Working Party onExport Credits and Credit Guaranteesagreed to an Action Statement onBribery and Officially SupportedExport Credits. The Action Statementpromised that: "In the event that . . .

bribery is established after an applica-tion is submitted . . . measures shallbe taken such as refusing to providesupport or, in the case that supporthas already been granted, denyingpayment of a claim, seeking refund ofany funds provided, referring evidencein connection with the bribery toappropriate national authorities."5

Whilst the risks of Balfour Beattylosing future export credit agencysupport as a result of corruption alle-gations involving past contracts areslim, the new rules accentuate theurgent need for the company to insti-tute rigorous internal controls in orderto ensure that corruption does notjeopardise its prospects of future ECAsupport.

D. Damaging PFI ProspectsDebarment from World Bank contractswould impact a small but significantpart of Balfour Beatty's business.

More threatening to shareholdervalue is the possibility that uncon-tained reputational risks will affectfuture contracts in the UK, where thecompany currently carries out themajority of its business. Thecompany's bid for the London Tubepublic-private partnership contract hasattracted critical attention from theCampaign Against Tube Privatisation,which includes unions RMT andASLEF.

With Balfour Beatty assuming ahigher public profile through its bidsfor PFI contracts, the risk of similarcampaigns emerging in the future isreal and significant. With PFIcontracts seen as a major engine offuture growth, this will be of concernto shareholders.


Given the growing impor-tance of reputational risks,shareholders will rightly wantassurances that thecompany has in place acredible strategy forcontaining unjustified reputa-tional risks. At a minimum,such a strategy wouldinclude: ● candidly acknowl-edging reputational riskswhere they arise;

● ensuring that share-holders are accuratelyappraised of such risks andthe steps taken to address

them; and

● ensuring that the company isactively engaged in - and respon-sive to - discussions and debatesthat affect the company's oper-ating environment and standing.

Unfortunately, evidence from thehydropower sector suggests that sucha strategy does not exist and that thecompany has missed key opportuni-ties for enhancing its reputation.

MISLEADINGSHAREHOLDERS?This impression is underscored by thereaction of the company to its criticsand by its less than frank statementsto shareholders on the issue of Ilisu.

In response to a letter fromFriends of the Earth, for example,Lord Weir has stated with regard tothe company's reputational risks: "Isee no reason to accept that ourcorporate reputation is, or should be,in any way damaged other than byfalse representation of our position."Given the adverse publicity that hassurrounded the company during thepast year - notably over Ilisu andBalfour Beatty's involvement in it -such denial is unconvincing andhardly reassuring.

Shareholders may also beconcerned that the company's

account of its involvement in Ilisu, aslaid down in a statement to share-holders issued for distribution at the2000 AGM6, is potentially misleading,particularly for shareholders who arenot familiar with the history of theproject. Discussing the EnvironmentalImpact (EIA) for the Project, forexample, Balfour Beatty states,

"As soon, therefore, as theconsortium discovered that Turkeyhad not yet conducted a formalEnvironmental Impact Assessment[EIA] for this project, it commissionedan international group of consultantsto produce one. The first draft report(March 1998) indicated that, whilst insome ways the impact would beneutral or positive, there were alsoserious concerns and specific meas-ures would have to be taken byTurkey to avoid unacceptable conse-quences. Following various inde-pendent reviews of that originalreport, and discussions with potentialproviders of finance, a number of keyissues have emerged as critical.These have become the subject ofinter-governmental discussions.Meanwhile, as the original report isnow two years old, an update is underway with the objective of producing amore definitive edition by the summerof 2000."

Not only does this statement begthe question of what managementshortcomings allowed Balfour Beattyto become involved in this highlycontroversial dam before an EIA hadbeen undertaken, its suggestion thatthe new EIA will merely be an"update" of the first EIA, requiredbecause the 1998 report is "now twoyears old", gives an impression as thereport's completeness that is highlymisleading. "Updating" suggests littlemore than dotting the ‘i’s and crossingthe ‘t’s on an otherwise complete,comprehensive and thorough report.In fact, considerably more than thiswill be required.


Containing risks -

has the company gota credible strategy?

Kerim Yildiz, a Director of the Ilisu DamCampaign

Shareholders should be aware ofthat the original EIA was found to bedeficient in a number of importantrespects and that it was not deemedby independent reviewers, including ateam commissioned by the UKgovernment, to meet internationalstandards of best practice.7

Significantly, the UK government'sreview does not indicate that the EIAwas a "draft" (as now claimed by thecompany) but refers to it throughoutas the "the Ilisu EIA".

Although the UK government'sreview, undertaken by EnvironmentalResources Management, describedthe EIA as "well prepared", it high-lighted a number of key areas whichthe report had entirely overlooked.The report gave no consideration, forexample, to the cumulative effects ofthe dam in conjunction with other proj-ects. No information was made avail-able on the effects of altered river flowon wetlands downstream. In addition:"Little or (in most cases) no detailsare provided regarding the time-tabling of proposed data collectionand mitigation measures, the institu-tional responsibilities and capacitiesfor their implementation, the estimatedresources needed (financial andmanpower related) and the proposedmethods or sources of finance."

In effect, the new EIA wasrequired not because the 1998 EIAwas "now two years old" but becauseit did not meet international standards.The only sense in which it could besaid to have needed "updating" wasthat many of the necessary studieshad not been done "to date".

Shareholders may wish to pressthe company for an explanation as towhy the company failed to informthem in its shareholders' briefing onIlisu that the original EIA fell short ofinternational best practice.

FAILURE TO ENGAGE WITHTHE WORLD COMMISSION ONDAMSFurther evidence that managementlacks a coherent, credible strategy forcontaining reputational risks alsocomes from its failure to engage withthe World Commission on Dam'shistoric industry-wide review of thehydropower sector

The World Commission on Dams(WCD) was set up by the World Bankand the International Union for theConservation of Nature in 1997 "toreview the performance of large damsand make recommendations for futureplanning of water and energy proj-ects". The Commission was chairedby Kader Asmal, South Africa's thenMinister for Water, and consisted ofindustry leaders (including GoranLindahl, at the time CEO of ABB),Honorary President of the industry-sponsored International Committee onLarge Dams (ICOLD), academics withexpertise in the energy and watersector, respected civil servants, andmembers of the NGO community. TheCommission was also supported by aWCD Forum, a 68-member consulta-tive group set up by the WCD andconsisting of key representatives fromgovernment, the private sector, multi-lateral development agencies andaffected communities.

The WCD's independence -reflected in the composition of theCommission - is widely acknowl-edged; and its report, based on twoand a half years of in-depth researchand consultation, constitutes the mostcomprehensive, global review of theeconomic, social and environmentalimpacts of dams to have been under-taken. The WCD published its report,Dams and Development, in November2000.

Given the importance of the WCD- in particular, its remit to draw up newguidelines for the industry - share-holders would have been justified in

expecting their company to havetaken an active role in theCommission's work, as its leadingcompetitors have done. A number ofinternational companies, includingABB, Alstom, Atlas Copco, Coyne &Bellier, Enron, Harza, Hydro-Quebec,Lahmeyer, Voith Siemens andSkanska, all assisted the WCD indeveloping guidelines for the future ofwater and energy development:Balfour Beatty, however, took no partin the WCD process, apart fromattending its launch and a pressseminar organised jointly withReuters. The company made noformal submissions to the WCD.

This failure to engage with aprocess that will inevitably impact onan area of business to which thecompany is committed will rightly beof concern to shareholders. Thecompany's non-engagement not onlyensured that its voice went unheard indrawing up new guidelines for theindustry but also that to manyobservers it appeared "out of theloop", with potential damage to itsstanding in the sector.

REPUTATIONAL RISK ANDCOMPETITIVENESSThe company's failure to engage withthe WCD calls into question its busi-ness strategy with regard to thehydropower sector.

The WCD's guidelines are nowwidely acknowledged as the bench-mark for international best practice.Indeed, any company wishing toremain in the hydropower sectorwithout damage to its reputation will,in the opinion of many commentators,need to adopt these guidelines.

Already a number of BalfourBeatty's peers have thrown theirweight behind the guidelines, as havesome key institutional players in thefield of international development.

On the day of the launch of theWCD's report, for example, Skanska,until recently a partner of Balfour


Beatty in the Ilisu dam constructionconsortium, announced it would adoptthe WCD's new guidelines. Skanska'spress release stated, "Skanskaintends to apply the guidelines formajor hydropower projects recom-mended by the World Commission onDams …." Axel Wenblad, VicePresident of Environmental Affairs ofthe Skanska Group, said, "We find theCommission's work to be extremelyvaluable. It represents a major stridefor sustainable development, withopen and transparent processes inwhich all affected parties can partici-pate, particularly those groups thatare affected directly. Our hope is thatthe Commission's work can serve asa model for dealing with other types ofcontroversial infrastructural projects.At Skanska, we hope that theCommission's new criteria and guide-lines become accepted globally andwe are prepared to actively strivetoward these being accepted amongthe stakeholders concerned."8

Other companies and industryassociations have also welcomed theWCD's report. Harza, a majorhydropower development firm, wrotein a letter to the Washington Post,"The report offers a unique insight intodams and their benefits and associ-ated costs. The report proposes asound approach to the future develop-ment of a very old, yet important,water resource technology."9 An edito-rial in Hydro Review Worldwide, aleading industry publication, stated"…as Commission Chair Kader Asmalhas declared, the 'real work' must nowbegin. This work includes reducingthe broad findings of the Commissioninto practical, implementable policiesand practices. These, in turn, can leadto the creation of socially beneficial,politically acceptable, and affordableand financeable developments -including new dam based waterresource projects."10

Multilateral development bankshave also responded favourably to theWCD's report and are consideringadoption of its guidelines. In January2001, the African Development Bankannounced, "The [WCD's] criteria,guidelines and standards, provided inthe report, would be particularly usefulduring the planning, design, appraisal,construction, operation, monitoringand decommissioning of damsfinanced by the Bank. We plan toincorporate the criteria and guidelinesduring the development of Bank'stechnical guidelines to support ourrecently completed policy onIntegrated Water ResourcesManagement." The AsianDevelopment Bank told the WCD'sCommissioners in December 2000that "ADB will re-examine its ownprocedures, including our environmentand social development policies, anddetermine the extent to which thereport's recommendations may neces-sitate changes in these procedures."

So too, bilateral governmentfunders have supporterd the WCD'sreport. The German Ministry ofDevelopment announced it would notonly review its own guidelines but alsostrive to ensure the WCD guidelines’implementation in multilateral fora.The UK government has alsoresponded favourably, with ChrisMullin, Parliamentary Under-Secretaryof State for InternationalDevelopment, announcing that theDepartment for InternationalDevelopment "…will offer support togovernments in developing countrieswanting to implement the DamsCommission report. We are willing toprovide assistance on applying criteriaand implementing the guidelines."11

The management of BalfourBeatty has responded lukewarmly tosuggestions that it should endorse theWCD guidelines, both to secure itsposition as an industry leader and torestore the damage to its reputation

incurred through involvement in Ilisu.In a letter to Friends of the Earth, LordWeir states:

"There is also at this stage, as youwill recognize, complete uncertainty asto how in practice promoters of damswill interpret the W.C.D. principles andseek to implement them and whatexternal reactions will be. As doubtlessyou will also do, we await with interestthe first specific example of whathappens in practice."12

Shareholders may regret thatBalfour Beatty appears be reactingpassively to the WCD process,surrendering the leadership role to itspeers. This appears to reinforce theview that the company has yet todevelop a proactive, coherentapproach to reputational risk that willensure its future competitiveness.

RESTORING BALFOURBEATTY'S REPUTATIONThis briefing argues that BalfourBeatty's value is threatened byadverse publicity surrounding thecompany; that management has nocoherent strategy for managing repu-tational risks, with significant implica-tions for future earnings; and that thecompany's competitors in the hydrosector have stolen a lead on thecompany by recognizing the businesssignificance of endorsing the WCDGuidelines.

Developing a strategy forcontaining reputational risks will taketime. However, committing thecompany to the WCD principles wouldshow leadership in a key area ofcorporate social responsibility andhelp rebuild Balfour Beatty's damagedreputation. It would also bringcommercial benefits in competing forbusiness, particularly in the publicsector, and is likely to help reassureinvestors in that Balfour Beattymoving in the right direction, withpositive consequences for the shareprice.We therefore urge shareholdersto vote FOR Resolution 15.



Four people died andmore than 30 were injured inthe Hatfield train crash lastOctober. In January 2001, apreliminary Health andSafety Executive (HSE)report found that a brokenrail was the "substantial" ifnot the only cause of thecrash. Balfour Beatty wasthe rail maintenance firmresponsible for inspectingthe track at Hatfield at thetime of the crash. Six seniorexecutives may face corpo-rate manslaughter chargesin connection with the crash,including staff at BalfourBeatty. If the case doesreach court, it would bealleged that executives hadfailed to take action toreplace the defective railthought to have been amajor cause of the accident.

Days before the HSE'sreport was published,Railtrack announced thatBalfour Beatty had lost the£250m contract to continueto operate on the EastCoast main line, insteadnaming a rival firm, Jarvis,as the preferred bidder.13

Hatfield Rail CrashHealth and safety concerns

Group activities - a range of concerns...

In September 2000, ajoint venture companycomprising Carillion, AlfredMcAlpine, Balfour Beattyand AMEC was awarded the£485.5 million contract todesign and construct thehighly controversialBirmingham Northern ReliefRoad, the UK's first tollroad. The motorway woulddestroy 27 miles of the WestMidland's green belt anddamage two nationallyimportant nature sites (Sitesof Special ScientificInterest).

Local people andFriends of the Earth havecampaigned against theroad, targeting bothinvestors, such as AbbeyNational, and the construc-tion companies involved.Hazel Barnes of the AllianceAgainst the BNRR warns:"We haven't gone away, andwe don't intend to. There's alot of anger about thismotorway and thoseinvolved need to know it."14

Birmingham North-ern Relief RoadEnvironmental concerns

The Campaign AgainstTube Privatisation (CATP,comprising the railworkersunion, RMT, ASLEF andconcerned citizens) has helda number of demonstrationsat Balfour Beatty officesover its bid for the Londontube PPP contract.

Balfour Beatty has beenshortlisted for the contractand has attracted CATP'sconcerns over thecompany's health and safetyrecord.

LondonUndergroundHealth and safety concerns

In June 2000, dozens offederal agents and localpolice seized computers andrecords from the offices ofBalfour Beatty-Massachusetts Electric, thejoint-venture partnershipconstructing Amtrak's elec-tric system for the NortheastRail Co.

FBI and Amtrak officialssaid that the 7 a.m. raid wasconducted to execute afederal search warrant in ajoint investigation by the FBIand the Office of InspectorGeneral of the NationalRailroad Passenger Corp.

Amtrak InspectorGeneral Fred Weiderholdsaid investigators weretrying to determine whyBalfour Beatty hadsubmitted hundreds ofrequests for reimbursementfor changes in the projectsince it began in 1996 andthat have inflated the orig-inal contract cost by some$280 million. The amountpaid Balfour Beatty hasgrown to $600 million.15

FBI raid BalfourBeatty officesFraud allegations


...across three continents

A history of problems

The Lesotho HighlandsWater Development Projecthit the headlines in August1999 after the Lesothogovernment accusedMasupha Sole, the formerCEO of Lesotho HighlandsDevelopment Agency, oftaking nearly $2 million inbribes from several majorcompanies and twoconsortia, including theLesotho Highlands ProjectContractors (LHPC), of whichBalfour Beatty is a part. Thecharge sheet listed details ofwho allegedly paid Sole.

In November 1999, theLesotho authoritiesannounced that the compa-nies were to be prosecutedfor having "wrongfully,unlawfully and corruptlymade payments/transfers" toSole. The case against theLHPC comes before thecourt again in August 2001.16

The World Bank haspromised an internal investi-gation of the charges. TheBank can debar companiesfound guilty of corruptionfrom bidding on Bank-funded projects.17

Lesotho HighlandsWater ProjectProsecution for allegedbribery

UK:Hatfield rail crashLondon UndergroundBirmingham Northern Relief Road

USA:FBI raid

Lesotho:Prosecution for alleged bribery

Turkey:Ilisu Dam

Heathrow TunnelIn February 1999, Balfour

Beatty was fined a record£1.2 million for breaches inhealth and safety during itsconstruction of a new raillink to Heathrow airport. Thefine was the highest evermeted out by the Health andSafety Executive (HSE) forincidents involving no loss oflife. The judge called theincident "one of the worstcivil engineering disasters inthe United Kingdom in thelast quarter of a century . . .It is a matter of chancewhether death or anyserious injury resulted fromthese very seriousbreaches."18

Balfour Beatty was one oftwo companies contracted toconstruct tunnels for the£550 million rail link. One ofthe tunnels collapsed inOctober 1994, leaving a

crater which dragged downcar parks and shook build-ings, and crushed parts ofthe Piccadilly Line.

Channel TunnelBalfour Beatty was one of

five UK companiescontracted to build theChannel Tunnel, linkingEngland and France. All fivewere found guilty of failing toensure the safety of sevenworkers who were killedduring the constructionperiod. Each of the contrac-tors was fined between£40,000 and £125,000.

In one case, the prosecutorclaimed that the breacheswere a continuing dangerthat the contractors haddone nothing to prevent.Commenting on the circum-stances surrounding thedeath of a 26-year oldworker, the judge said, "The

failure in this case is one ofthe worst this court hasheard about in the pastyears. This accidenthappened because thesafety procedures in placewere not properly super-vised and carried out."19

Cardiff Bay BarrageBalfour Beatty was the

lead contractor for theCardiff Bay Barrage - a1.1km dam replacing tidalmudflats with a 500-acrefreshwater lake, completedin 1999. The project wascriticised by local citizens,campaign groups such asFriends of the Earth, and theEuropean Commission forits impact on the environ-ment. The project inundatedimportant habitats for birds,including the threatenedredshank and dunlin.20

78,000 people affectedIt is predicted that the Ilisu dam will affect up to 78,000people, the majority of them Kurds

Threatens water warsThe Ilisu dam is planned for the River Tigris and coulddisrupt downstream flow to Syria and Iraq

Cultural heritage destroyedThe Ilisu dam will flood over 300 square kilometres,including the ancient town of Hasankeyf, dating back10,000 years


THE ILISU DAMBalfour Beatty is lead contractor forthe consortium that will build thecontroversial Ilisu Dam in the Kurdishregion of Southeast Turkey.

The area has been ravaged by anarmed conflict and is still underEmergency Rule. Human rightsabuses - including torture and disap-pearances - are common.Unsurprisingly there has been consid-erable concern over the prospects fora just resettlement of those affectedby the project.

At the time that the companybecame involved, however, no reset-tlement plan had been prepared, incontravention of international stan-dards. The numbers to be resettledhave also been grossly underesti-mated. In July 1999, the companystated: "Although this area of Turkey isrelatively sparsely populated, a total ofsome 12-16,000 people are likely tobe affected".21 In 2000, however, areport commissioned by the Export

The Ilisu Dam

Left March 2001, Friends of the Earth andthe Ilisu Dam Campaign protest at BalfourBeatty’s London Headquarters

Far right Balfour Beatty’s AGM 2000;protesters demonstrate inside the AGMcalling on the company to withdraw from Ilisu

1 The ancient town of Hasankeyf,which will be flooded by the IlisuDam

2 A construction workers’ unionrepresentative announces a ‘greenban’ on Balfour Beatty

3 October 2000; rally in ParliamentSquare protesting against the Ilisudam

1

Credit Agencies considering supportfor the project estimated that up to78,000 people could be affected.22

A number of human rights abusesdirectly associated with the dam havealready been documented: dam criticshave been subjected to intimidation23

whilst organisers of a rally to cele-brate the history of Hasankeyf wereforbidden by the local Governor fromdistributing a petition expressingconcern over the dam. Such humanrights abuses raise major concernsabout the likelihood of a successfuldevelopment outcome to the Ilisuproject.

The dam will flood 183 settle-ments as well as internationally impor-tant archaeological sites, including theancient town of Hasankeyf, whichdates back 10,000 years.

ILISU - "THIS MISERABLE DAM"The project has been severely criti-cised by a number of UK parliamen-tary Select Committees, trade unions,

environmental groups, human rightsgroups and the media. (See page 3.)

In March 2000, the Trade andIndustry Select Committee concluded,"...we share the view of Ministers thatthe greatest remaining obstacle togranting export credit for the dam isthe prospect of a programme ofdisplacing thousands of local resi-dents without proper consultation,compensation and resettlement."24

The International DevelopmentSelect Committee was still moredamning: "The shotgun weddingapproach to export credit that we findin the case of the Ilisu Dam... is theworst form of export credit practice",noting that "the Ilisu Dam was fromthe outset conceived and planned incontravention of international stan-dards, and it still does not comply. Forthat reason [export credit] covershould not be given."25

Returning from a visit to the Ilisuarea, Ann Clwyd, chair of the parlia-mentary Human Rights Group and a

prominent member of the InternationalDevelopment Committee, called Ilisu"this miserable dam".26

Balfour Beatty has also comeunder pressure over its involvement inthe Ilisu dam project from its maintrade union, the Union of ConstructionAllied Trades Technicians (UCATT). InSeptember 2000, UCATT's SoutheastRegional Council (which represents aquarter of UCATT's national member-ship) passed a resolution announcinga 'green ban' on Balfour Beatty andthe Ilisu dam. The resolution"…unequivocally states our oppositionto the proposed Ilisu Dam" and says,"Being the premier trade union forconstruction workers, [UCATT will]encourage all UCATT members andconstruction workers within our regionto refuse to undertake any works onthe contract."27


2 3

WHEREAS:● It is important for Balfour Beatty to

reduce its exposure to poorlycontained or unacceptable reputa-tional risks;

● Balfour Beatty continues to sufferfrom exposure to such risks,ranging from its involvement incontroversial construction projects(such as the Ilisu dam inSoutheastern Turkey) to the pros-ecution in Lesotho for bribery ofthe Lesotho Highlands ProjectContractors' consortium of whichBalfour Beatty is a member;

● A model for developing water andenergy projects in a way whichminimises potential controversyand reputational risks has recentlybeen developed by the highlyauthoritative World Commissionon Dams, with the involvement ofcompanies such as ABB, govern-ments, the World Bank and non-governmental organisations.These benchmark standards havebeen adopted by leadingconstruction company Skanska,which has also withdrawn fromthe Ilisu Dam project, and are nowbeing considered for adoption bymultilateral development banksand export credit agencies;

● The World Commission on Dams'Report identifies specific stake-holders, such as the privatesector, to whom its recommenda-tions are addressed;

WE RESOLVE:1. That the company recognises the

importance of the principles,criteria and guidelines of theWorld Commission on Dams'Report;

2. That the company hereby adoptsas formal company policy that itshall endeavour to ensure that allfuture hydropower contracts inwhich it is involved comply withthe Set of Guidelines for GoodPractice (contained in Chapter 9of the Report);

3. That the company considers thepotential to use those Guidelinesin other areas of its business,

4. That the Business PracticesCommittee reports to share-holders on the company's imple-mentation of the Guidelines.


Resolution No. 15:balfour beatty andthe WorldCommission onDams

ENDNOTES1. Response to oral question to Tim Sharp (Balfour Beatty) at Socially Responsible Investment and Construction Seminar organised

by the UK Social Investment Forum, July 2000. (Figures should be regarded as an estimate.)

2. Alejandro Reyes 1996, ‘Keeping a City Clean: Multinationals are Banned over Graft’, Asiaweek web-site:http://www.asiaweek.com/asiaweek/96/0301/biz3.html, accessed 20 April 2001.

3. As a member of the Lesotho Highlands Project Contractors (LHPC), Balfour Beatty is currently being prosecuted in Lesotho, oncorruption charges arising from the consortium's involvement in the Lesotho Highlands Water Project. In a judgement given inOctober 2000, in a similar case against the Highlands Water Venture (HWV) consortium, the Court of Appeal in Lesotho ruledthat partnerships per se could not be charged because they lacked legal personality. The prosecuting authority in Lesotho has yetto decide against which of the individual members of HWV it will now proceed. The effect of the Court of Appeal's ruling is that asimilar procedure will be adopted in the charges against LHPC when the matter comes before the court in August 2001.

4. Commentaries on the Convention on Combating Bribery of Officials in International Business Transactions, OECD, Paris,www.oecd.org/daf/nocorruption/20nov2e.htm , para.24.

5. "OECD Export Credit Community Agrees to Co-Ordinated Action to Deter Bribery in Government-supported Export CreditTransactions", Statement, OECD ECG 6 December 2000.

6. Balfour Beatty, 'Ilisu Dam Project: Information for Shareholders', 9 May 2000.

7. The UK’s Export Credit Guarantee Department (ECGD) commissioned Environmental Resources Management to conduct a deskstudy of the EIA. ERM concluded: "The scope of work to date would need to be extended to bring the analysis to internationalbest standards."

8. Skanska press release, "Skanska supports the World Commission on Dams' recommendations for long-term sustainablehydropower projects", Skanska, 16 November 2000.

9. Letter to The Wall Street Journal, from Edward F. Carter, Director, Managing Partner, Harza Engineering Company, 30 November2000.

10. Hydro Review Worldwide, 'Reaction to the Final Report', Viewpoint, on: www.dams.org accessed 12 March 2001.

11. Keynote address of Chris Mullin MP to Institute of Civil Engineers/British Dams Society Seminar, "After the World Commission…Dams in the Future", 1 February 2001.

12. Letter to Friends of the Earth from Lord Weir, Chairman, 15 February 2001.

13. Guardian Unlimited 'Hatfield rail crash inquiry may name names', Keith Harper, Monday January 22, 2001.

14. Web-site http://www.beep.dial.pipex.com/bnrr/pr281000.htm accessed 20 April 2001.

15. Web-site http://www.zwire.com/site/news.cfm?newsid=516310&BRD=1281&PAG=461&dept_id=7573&rfi=8 accessed 20 April2001. See also www.newhavenregister.com, www.ctnow.com, and www.wtnh.com.

16. See footnote 3.

17. Business Day, Johannesburg 18 November 1999.

18. Mr. Justice Cresswell, quoted in the Financial Times, 16 February 1999.

19. Financial Times: 23 November 1990, 19 November 1991, 29 April 1992 and 27 November 1993.

20. Financial Times: 4 March 1994, 15 April 1994 and 1 June 1994.

21. Balfour Beatty, "Ilisu dam and hydro-electric power project; project briefing", July 1999.

22. Ayse Kudat, "Ilisu Dam's Resettlement Action Plan (RAP) - Achieving International Best Practice". Distributed to export creditagencies 16 August 2000, unpublished.

23. In February 2000, for example, the Mayor of Hasankeyf was forced to cut short a visit to Europe after receiving anonymousthreats. The Mayor had been scheduled to talk to the Minister responsible for the UK's ECGD.

24. Select Committee on Trade and Industry, Sixth Report, 9 March 2000.

25. International Development Select Committee, "ECGD, Developmental Issues and the Ilisu Dam", July 2000.

26. Ann Clwyd MP visited the Ilisu region in July 2000. On her return, she reported that her visit had left her "disgusted" at the Turkishgovernment's lack of meaningful consultation with the thousands who will be affected by what she called "this miserable dam"and "shocked" at the scale of human misery and suffering that Ilisu would unleash. The dam, she said, would "result in serioushuman rights abuses for the Kurdish minority, cause environmental havoc and could even spark off war in the region." See: AnnClwyd, "Stop this Miserable Dam - Ann Clwyd Returns from Turkey", Press Release, 17 July 2000.

27. UCATT "Ilisu Dam Statement" passed by London South East UCATT Regional Council meeting held Friday 22nd Sept 2000.


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